GNE is a diversified energy company with a primary emphasis on generating and reselling electricity in New Zealand. It also resells natural gas and LPG to commercial and residential customers across the country and owns a 46% interest in the Kupe Oil & Gas Field.
GNE derives most of its operating revenue from generating and selling electricity. GNE owns and operates 5 power plants with a combined electrical capacity of 1,647MW and a productive output of approximately 7.0TWh per annum. Its power plants are located in different parts of New Zealand and produce electricity from different fuel types:
- The 953MW Huntly Power Station in Waikato, which comprises of a 50MW open-cycle gas turbine, a pair of 250MW coal-and-gas-fired steam turbines and a 403MW combined-cycle gas turbine;
- 3 stored hydro generators in Waikato, the Hawkes Bay and Canterbury with a combined capacity of 687MW. These include the 362MW Tongariro Power Scheme, the 138MW Waikaremoana Power Scheme and the 187MW Tekapo Power Scheme; and
- The 7MW Hau Nui wind farm in the Wairarapa region.
The electricity GNE produces is mostly sold into the New Zealand wholesale electricity market, whose prices are determined by supply and demand at each of the 285 transmission grid injection and exit points. GNE purchases electricity from the New Zealand wholesale electricity market that it then meters and resells to its 480,000 or so retail and commercial electricity customers under different fixed and variable contracts.
In addition to its electricity generating operations, GNE also owns 46% of the Kupe Oil & Gas Field, which is operated by Beach Energy. It is located offshore in New Zealand’s Taranaki basin and has a remaining reserve estimate of about 250.4 PJe of gas, LPG and light oil (P2), and comprises of 3 production wells, a normally unmanned offshore platform, a pipeline to shore, an onshore production station near Hawera and oil storage facilities in New Plymouth. The field produces approximately 25.0PJ of gas, 100kt of LPG, and 1.0mbbl of light crude oil per annum. GNE retains its proportional share of gas and purchases the rest under a take-or-pay contract for the life of the field. It also retains its share of LPG, which it resells to its 105,000 or so retail and commercial gas customers and 90,000 LPG customers. Its share of light crude oil is sold on its behalf by Beach Energy, mostly to international refineries.
Electricity generation is often characterised as capital intensive and volatile because of the costs involved in developing power plants and the uncertainty of offtake electricity prices. Electricity retailing is less capital intensive with lower barriers to entry, and it therefore tends to be more competitive. Companies try to reduce their generation risks by developing baseload power plants with low fuel and operating costs (‘short run marginal cost’), by entering into long-term fuel supply contracts and power purchase agreements, or by hedging part of their generation through market instruments or their own retail customers. They also try to reduce their retail risks and customer churn by bundling multiple services into a single bill, by upselling customers into longer-term agreements and by diversifying the location and mix of their customers. Specifically, GNE has indicated its near-term focus is to: secure greater flexibility over its gas supply, such as via increasing its interest in the Kupe Oil and Gas Field; continue to target new retail customers, increase its customer retention and opportunistically acquire other retail customer groups; and continue to move away from larger generation thermal units to flexible fast-start peaking plants, in anticipation of increased wholesale price volatility as the overall proportion of hydro generation and other renewable energy sources continues to increase . While GNE still holds resource consents to build other power plants, there may not be sufficient demand to justify building new power generation in New Zealand over the medium-term.
GNE competes with other electricity generators and retailers in New Zealand who are also trying to attract customers through various pricing, quality and other customer propositions. Some of its larger competitors are Meridian Energy, Mercury NZ and Contact Energy and, to a lesser extent, Trustpower.
GNE has established a strong domestic brand and a vertically integrated business model with reliable channels-to-market and a range of consumer products. This gives it the opportunity to allocate more of its resources to business divisions with favourable demand drivers and vice-versa. Going forward, it should continue to benefit from increased sales and economies of scale through organic growth, expanding its product range and geographic presence, optimising its operations, continuing to vertically integrate the supply chain and undertaking complementary and value-accretive acquisitions. Its downside commercial risks could include: a broader economic slowdown that could affect the propensity of consumers to use discretionary heating and home appliances; the possible decommissioning of the Tiwai Aluminium Smelter that would remove a large part of New Zealand’s energy demand and lower the need for more expensive generation; erosion of margins or a loss of market share to other national competitors and alternative energy providers; loss of a key customer, distributor, supplier or employee; lower electricity prices or any unfavourable changes to the availability and delivered price of coal, gas and other supplier costs that are unhedged and cannot be passed on to customers through pricing increases; more stringent regulatory standards that may increase its compliance costs or restrict it from generating abnormal returns; the development and widespread adoption of alternative, cost-effective technologies that aim to reduce energy consumption or improve the efficiency of electricity generation; or any inheritance of undue liabilities or commercial risks through new product offerings, acquisitions and entrances into new markets.
2014: Genesis Power was established in 1999 as a separate state-owned enterprise when the Electricity Corporation of New Zealand (ECNZ) was broken up and corporatised. A reform of the broader energy sector required power companies to separate into generator-retailers or distribution businesses, Genesis Power being the former. At the time, it owned and operated the 1,000MW coal-fired Huntly Power Station, the 360MW Tongariro hydro scheme, the 138MW Waikaremoana hydro scheme and the 2MW Hau Nui windfarm. By the time it was partly privatised and listed on the New Zealand Stock Exchange in 2014 (GNE.NZ), it had: decommissioned one of three coal-fired generators in the Huntly Power Station, which it replaced with a 403MW combined-cycle gas turbine and 50MW open-cycle gas turbine; added 2MW to its Tongariro Power Scheme; added 5MW to its Hau Nui windfarm; and acquired the 179MW Tekapo A-B hydro stations. It had also grown its retail electricity customer base to 540,000, its retail gas base to 115,000 and acquired 31% of the Kupe Oil & Gas Field
2015: GNE retired a second 250MW coal-fired generator at the Huntly Power Station as part of its planned decommissioning and fuel-switch to gas and renewable sources
2016: GNE acquired a further 15% of the Kupe Oil & Gas Field from New Zealand Oil & Gas
2017: GNE acquired Nova Energy and its 35,000 LPG customers. By the end of the year, it owned and operated a 1,647MW power generation portfolio and 46% of the Kupe Oil & Gas Field. It also had over 500,000 electricity, 105,000 natural gas and 60,000 LPG customers across New Zealand. During the year, GNE began reducing its coal generation as a proportion of total output, with the intention to phase out entirely by 2030
2020: Rio Tinto announced that it would consider closing the Tiwai Aluminium Smelter, which accounted for 13% of New Zealand’s total electricity demand. Negotiations between Rio Tinto, electricity generators and the New Zealand government were not helped by the global COVID-19 pandemic, which forced major nations to temporarily close their borders and restrict people’s movements. This caused major disruptions to supply-chains, employment and consumer demand in almost every sector and with it, the demand for aluminium
2021: Ultimately the decision was made by Rio Tinto to wind down operations and close the smelter by the end of 2024, which would potentially leave the New Zealand electricity market with excess power availability particularly in the South Island
GNE was first listed on the New Zealand Stock Exchange on 16 April 2014. It had 1.0 billion shares on issue at the end of the 2018 financial year, 52% of which were owned by the New Zealand Government and the rest by a mix of approximately 45,000 retail and institutional investors.
The GNE Board collectively owned 0.1 million shares at the end of last year. The Board currently comprises:
- Barbara Chapman has been the Independent Chairman since October 2018 and an Independent Director since May 2018. Barbara comes from a banking and finance background, having previously been the Chief Executive Officer and Managing Director of ASB Bank for a number of years. She also serves on the boards of Fletcher Building, NZME and The New Zealand Initiative;
- Joanna Perry has been an Independent Director since May 2007. Joanna holds various other board positions with Trade Me Group, Kiwi Property Group, Partners Life and Regional Facilities Auckland. She is also the Chairman of the IFRS Advisory Council;
- Maury Leyland has been an Independent Director since August 2016. Maury is also a Director of The Education Hub;
- Doug McKay has been an Independent Director since June 2014. Doug also serves on the boards of IAG New Zealand, Bank of New Zealand, Ryman Healthcare and National Australia Bank;
- Timothy Miles has been an Independent Director since November 2016. Timothy also serves on the Advisory Boards of Revera and CCL Group;
- Paul Zealand has been an Independent Director since October 2016. Paul is also a Director of the New Zealand Refining Company and Lochard Energy;
- James Moulder has been an Independent Director since October 2018. James also serves on the board of Tasman Environmental Markets; and
- Catherine Drayton has been an Independent Director since March 2019. Catherine also serves as a Director of Christchurch International Airport, Beca Group and Southern Cross Hospitals.
Marc England has been the GNE Chief Executive Officer since May 2016. Marc comes from a mechanical engineering background and previously served as the Group Head of Strategy at AGL Energy in Australia.